What is Stock Trading?

by Amanda Harvey

Introduction

What is stock trading? It is the buying and selling of shares (each constituting a percentage of equity ownership) in publically listed companies. The majority of stock trading is conducted through an exchange, which is a regulated market that provides an organized arena for buying and selling shares as well as other financial products. An exchange may be a physical location, or an electronic network. A certain amount of stock trading is carried out through private trading, sometimes in a private trading environment such as a dark pool.

What is Stock Trading History?

While there is much debate as to when corporate stock trading in its current form first started, the concept of stock trading has its roots in ancient times. There is documentation of share-holding type arrangements as far back as ancient Rome, offered with organizations that were providing services like building for the government.

A key date in the history of stock trading is certainly the establishment of the Dutch East India Company in 1602. This company was formed to conduct spice trading between the Netherlands and the part of Asia which includes what is now Indonesia. The company was funded largely by investors, and these shareholders, while having little influence over operations, received substantial annual dividends over a period of several decades.

In England, the issuance of the first government bonds in 1693 and the establishment of the Bank of England the year after paved the way for companies to begin offering shares to the public.

The purpose of stock trading is two-fold. Companies provide a product or service capable of generating profit, and these companies require investment capital in order to operate. By offering shares in the company, and offering a percentage of ownership along with a percentage of profit, the company can attract investors who have capital to contribute.

The investor, on the other hand, has capital available, and is looking for an avenue in which this capital can attract a return. The company and its shareholders form a partnership, in which one party generates the income, and the other provides the funding required. The goal of this partnership is for all involved to realize a healthy profit.

What is Stock Trading Start-up Procedure?

A company seeking to procure investment capital by becoming part of the stock market must undertake a process which leads up to making an ‘initial public offering’ or IPO. This process involves partnering with an investment bank, and making decisions relating to the number and initial price of shares to be offered.

An individual wishing to invest in shares can choose whether to select a broker (an individual or a company that arranges the buying and selling of options on behalf of traders), or to buy shares directly from a company using direct stock purchase plans.

What is Stock Trading Basic Strategy?

One of the simplest forms of stock trading strategy are to either buy and hold shares in a value company, and to profit from annual returns on investment. This return can then be re-invested, generating even higher returns from greater capital.

The other most basic stock trading strategy is to buy value stocks at fair prices, and then to sell them at an increase when the prices have risen substantially.

It is worth noting that investing in value companies is a cornerstone of the stock investment strategy of Warren Buffett, one of the greatest investors of our time.

In Conclusion

To sum up on ‘what is stock trading?’ it is basically buying and selling shares in publically listed companies, through an exchange or privately, with the intention of generating profit. This profit can be attained through dividends paid to shareholders by the company, by selling the shares at an increase to the price paid, or a combination of these methods.

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